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ACC303 Contemporary Issues In Accounting 2

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  • Course Code: ACC303
  • University: Kings Own Institute
  • Country: Australia

Question:

Students are required to prepare a comprehensive report directed to an Australian ASX Top 100 listed corporation detailing a critical analysis of the effectiveness of the corporation to meet the obligations of the conceptual framework of accounting.

Note: Choosen Company is Origin Energy Pty LTD

Consideration of the Conceptual Framework Objective, Recognition Criteria, Fundamental and Enhancing Guidelines is essential. The relationship between accounting research and professional practice is essential. This article needs to inform your arguments.

The analysis and supported recommendations need to be formatted into a professional report as would be expected in a modern organisation by management and clients.

 

Answer:

Introduction:

In order to prepare the financial statements, the conceptual framework related to financial reporting is significant for the business organisations in the recent times. This is because it delivers considerable course of action along with the techniques and principles needed to develop the financial reports ( Barth 2015). Along with this, the conceptual framework could help in resolving various issues of the business organisations. Hence, the conceptual framework has a significant role to play for managing the financial aspects of the organisations.

In order to meet the requirements of financial reporting, this framework was initiated on the part of “International Accounting Standard Board (IASB)” in 1989. Hence, it would focus on examining the adherence related to recognition criteria, goals and qualitative characteristics of the framework. For enhancing the overall report quality, Origin Energy Private Limited is chosen as the firm, which is one of the leading integrated energy firms in Australia. The firm concentrates on exploration and production of oil and gas, energy retailing and power generation. It is included in the top ASX 100 corporations having ASX code of ORG (Originenergy.com.au 2018). Thus, this report would assess the conformance of Origin Energy in association with the conceptual framework.

 

Achieving the conceptual framework objectives:

As stated above, conceptual framework is highly significant in order to look after the aspects of the firms. The annual report of Origin Energy depicts that all the conceptual framework aspects are followed in this case. According to its recent annual report of 2017, the principles that are laid out in “Corporations Act 2001” and “Australian Accounting Standards Board (AASB)” are enforced for general purpose financial reporting.

Along with this, the consolidated financial statements are developed based on the principles and standards of “International Financial Reporting Standards (IFRS)” and “International Accounting Standard Board (IASB)”. Thus, the firm conforms completely to the regulations in the IFRS conceptual framework. In order to comply with this framework, it is necessary for an organisation to satisfy three particular objectives. Such objectives and the degree to which Origin Energy conforms to them are illustrated briefly as follows:

Valuable financial information:

The conceptual framework wants each business organisation to be responsible for delivering beneficial and meaningful financial information to the users for aiding in the decision-making procedure (Birt, Muthusamy and Bir 2017). The annual report assessment of Origin Energy states that timely necessary information is delivered to the users via the financial statements. The primary financial statements of the companies constitute of profit and loss statement, cash flow statement and balance sheet statement (Cordery and Sinclair 2016). In addition to this, the notes to accounts are represented in the annual report, which enable the users to obtain useful information.

Evaluation of amount, timing and uncertainties:

It is necessary to provide beneficial information to the users for analysing amount, timing and uncertainties that revolve around the cash flows of the organisation (Filip et al. 2017).

 

Information regarding organisational resources:

All the organisations should disclose vital information regarding their organisational resources for aiding in the process of decision-making for their users. In case of Origin Energy, the balance sheet statement is developed in such a manner that it helps the users to obtain crucial information about its economic resources, while conforming to the necessary regulations as laid out in AASB.

 

Based on the information evaluated above, it is highly evident that Origin Energy has satisfied all the objectives, which are stated in the conceptual framework related to financial reporting.

 

Achieving the criteria of recognition of the conceptual framework:

Under the conceptual framework related to financial reporting, it is mandatory for the corporate entities to comply with the recognition criteria related to revenues, assets, expenses, liabilities and equity. From another perspective, it is necessary for them to meet three basic criteria. The initial criterion is to present an overview of the financial aspects having relevant information. The second criterion is that the financial aspects are required to be represented faithfully. The final criterion is to increase the usefulness of these aspects for the users. These criteria are evaluated in the context of Origin Energy to determine its compliance with the conceptual framework and they are summarised as follows:

Assets:

It is obvious that an organisation tends to possess certain classes of assets. One of these assets in case of Origin Energy is property, plant and equipment, which is revealed in the annual report after depreciation is deducted from the cost of the asset. This asset cost is recognised only; in case, the organisation expects future benefits from the same.

 

In case of intangible assets of Origin Energy, impairment is charged on them. The impairment loss is recognised on the carrying values of the various asset classes. The economic lives of the intangible assets of the organisation are different, which do not need amortisation to be charged on them (Hodgson and Russell 2014).

 

Liabilities:

Origin Energy has different types of liabilities, which could be observed from its annual report. It recognises the deferred tax liabilities depending on the differences in the rate of tax.

 

In relation to contingent liabilities, the main items that are considered in case of Origin Energy constitute of guarantees, joint arrangements, capital expenditure along with legal and regulatory environment. According to the management perspective of Origin Energy, the organisation does not require any sort of provision for these obligations due to the lower likelihood that economic benefits would be flown away in future or unreliable measurement of amount (Holland 2016).

 

Equity:

In case of Origin Energy Limited, the main items of equity constitute of issued capital, reserves and retained earnings. The incremental amount is deducted from the total equity of the entity.

 

Revenue:

The management of Origin Energy Limited realises revenue at the selling point after the deduction of tax expense. Along with this, the sales provisions are recognised by relying on the entire evaluation. Henceforth, the selling value includes the revenue generated through the sale of products.

 

Expense:

In case of expenses related to Origin Energy Limited, they are recognised by keeping in mind their categories. The significant expenses of the firm constitute of direct raw materials, consumables, labour, exploration, depreciation, amortisation, impairment and others. The expenses are revealed and recognised as and when they occur (Wines and Scarborough 2015).

 

Hence, the evaluation of all the recognition criteria as laid down in the conceptual framework for financial reporting states that Origin Energy Limited has followed all the guidelines to provide necessary and beneficial information to its users.

 

Achieving the qualitative characteristics of the conceptual framework:

The conceptual framework consists of certain qualitative characteristics that are useful to enhance the financial reporting quality of an organisation (Laswad and Redmayne 2015). Origin Energy needs to possess these characteristics as well. Therefore, critical evaluation is conducted in the context of the organisation to identify the extent of conformance to such qualitative characteristics laid down in the framework and they are undernoted:

Relevance:

According to this characteristic, relevancy is crucial for the information provided in order to improve the decision-making process of the organisation. In case of Origin Energy Limited, adherence could be observed in relation to Corporations Act 2001, AASB and IFRS. In addition, it considers the current depreciation rates, tax and others (Luke 2016). Thus, effective financial decisions could be undertaken, since Origin Energy provides valuable information in its annual report.

Faithful representation:

All the Australian corporate entities are obliged to make fair and transparent representation of their financial statements (Yong, Lim and Tan 2016). In order to ensure this, the confidence of the shareholders plays a significant role from the organisational viewpoint. KPMG has prepared the audit report of Origin Energy and based on its audit report, it has been found that faithful representation of the financial statements is made, as it has followed the relevant accounting standards faithfully and considerably.

Comparability:

This particular characteristic of the framework provides opportunities for the stakeholders to understand the similarities and deviations in the financial information among various financial reports. The significant information is delivered to the users by presenting through tables and charts for their better understanding (Newberry 2015). Hence, the financial statements of Origin Energy could be compared with its market rivals for gaining an insight of its actual financial position.

Verifiability:

It is necessary for all the business firms to reveal their financial information in such a manner that the users are able to verify them appropriately. For assuring this specific characteristic, Origin Energy classifies all the accounting aspects by providing notes to the financial statements in their annual report.

Timeliness:

Every organisation needs to have a fixed timeframe of revealing their financial information to their users. Quarterly and annual reports are observed to be provided to the users in case of Origin Energy (Ryan et al. 2014). Thus, such timely disclosure of information would help in assuring the trust of the users, since they could obtain a fair overview about the performance and position of the organisation in the market.

Understandability:

By adhering to this characteristic, the financial information needs to be represented in such a way that it becomes easy for the users to understand the same adequately (Watts and Zuo 2016). Origin Energy discloses its financial statements in a format prescribed under the conceptual framework for financial reporting so that its users could understand them easily.

 

Conclusion:

The above discussion clearly inherits that all the guidelines and regulations laid down in the conceptual framework of AASB have been followed appropriately on the part of Origin Energy Limited. In addition to this, the norms and principles of IFRS, IASB and Corporations Act 2001 are followed as well while the consolidated financial statements are prepared. Furthermore, it is clearly evident that the organisation has adhered to all the recognition criteria of the conceptual framework for financial reporting purpose. In case of Origin Energy, the balance sheet statement is developed in such a manner that it helps the users to obtain crucial information about its economic resources, while conforming to the necessary regulations as laid out in AASB.

Origin Energy classifies all the accounting aspects by providing notes to the financial statements in their annual report. Quarterly and annual reports are observed to be provided to the users and such timely disclosure of information would help in assuring the trust of the users, since they could obtain a fair overview about the performance and position of the organisation in the market. Finally, it has been found that faithful representation of the financial statements is made, as it has followed the relevant accounting standards faithfully and considerably.

 

References:

Barth, M.E., 2015. Financial accounting research, practice, and financial accountability. Abacus, 51(4), pp.499-510.

Birt, J.L., Muthusamy, K. and Bir, P., 2017. XBRL and the qualitative characteristics of useful financial information. Accounting Research Journal, 30(01), pp.107-126.

Cordery, C.J. and Sinclair, R., 2016. Decision-Usefulness and Stewardship As Conceptual Framework Objectives: Continuing Challenges.

Filip, A., Hammami, A., Huang, Z., Jeny, A., Magnan, M. and Moldovan, R., 2017. Literature Review on the Effect of Implementation of IFRS 13 Fair Value Measurement.

Hodgson, A. and Russell, M., 2014. Comprehending comprehensive income. Australian Accounting Review, 24(2), pp.100-110.

Holland, D., 2016. Simplifying income recognition for not-for-profit entities. Governance Directions, 68(11), p.666.

Laswad, F. and Redmayne, N.B., 2015. IPSAS or IFRS as the Framework for Public Sector Financial Reporting? New Zealand Preparers’ Perspectives. Australian Accounting Review, 25(2), pp.175-184.

Luke, B., 2016. Measuring and reporting on social performance: from numbers and narratives to a useful reporting framework for social enterprises. Social and Environmental Accountability Journal, 36(2), pp.103-123.

Newberry, S., 2015. Public sector accounting: shifting concepts of accountability. Public Money & Management, 35(5), pp.371-376.

Originenergy.com.au., 2018. [online] Available at: https://www.originenergy.com.au/content/dam/origin/about/investors-media/annual%20review%202017/AnnualReport_FY2017.pdf [Accessed 12 Apr. 2018]

Ryan, C., Mack, J., Tooley, S. and Irvine, H., 2014. Do Not?For?Profits Need Their Own Conceptual Framework?. Financial Accountability & Management, 30(4), pp.383-402.

Watts, R.L. and Zuo, L., 2016. Understanding practice and institutions: A historical perspective. Accounting Horizons, 30(3), pp.409-423.

Wines, G. and Scarborough, H., 2015. Australian government budget balance numbers: The hybrid nature of public sector accrual accounting. Accounting Research Journal, 28(2), pp.120-142.

Yong, K.O., Lim, C.Y. and Tan, P., 2016. Theory and practice of the proposed conceptual framework: Evidence from the field. Advances in Accounting, 35, pp.62-74.

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